Younger, savvier investors are making up a new movement.
Driving the stock market from pandemic lows, a new crop of younger, and often more aggressive, retail investors is poised to place bets on equities --some of them tapping their upcoming stimulus checks .
"With potential direct stimulus payments of $465 billion being planned, thiscould represent a sizable inflow into equities ($170 billion)," said Deutsche Bank strategists Parag Thatte, Srineel Jalagani and Binky Chadha, in a note to clients late last month.
The strategists released a wide-ranging survey offering a glimpse into a fresh wave of stock-market investors they credit for helping the S&P 500 rally some 70% from lows put in last March as the market was buffeted by the onset of the COVID-19 pandemic. They surveyed 430 U.S. users of online brokerage platforms between Feb. 5 and 9, with nearly two-thirds of respondents 44 years old or younger.
As for that possible big inflow of fresh money to stocks, 37% of respondents say they plan to use any stimulus checks they receive for that purpose. That is even as only a small part of stimulus funds were spent last year on stocks, as many made use of cash savings, reductions in spending and rotations out of other assets classes.
According to data from Barclays Bank, some $178.5 billion poured into global equities in the first two months of the year. That is as Deutsche Bank revealed that this new wave of investors appears to be less fearful and even more savvy than past new-investor cadres. It observed that 61% of new retail investors were under the age of 35.
"The group of new individual investors exhibits several characteristics which are markedly different from those that have been trading for longer, and in particular show greater use of leverage, option trading and reliance on social media for investment advice," said the Deutsche Bank team.
More than 50% frequently used options, with the same amount trading more than 10 times a month versus those with more than two years of experience, where the comparable figure was just 19%. In addition, 26% say they have used some sort of leverage or borrowing to buy stocks, versus just 9% among those who have been investing one to two years. That number drops to 3% for more seasoned investors.
Providing proof of just how new many of these traders are to stocks, 45% reported to be investing for the first time in the past year, and more than half increased their stock investments over the past year.
Behind the surge
The survey comes as the GameStop saga has continued to attract attention and concern on Monday.
The so-called meme-stock episode fueled views that the traders who jumped into GameStop and other popular names were undisciplined, younger traders whose inexperience led then to place risky bets. But Vlad Tenev, the chief executive of the popular trading platform Robinhood, countered that view, telling a congressional hearing that most Robinhood users were investing for the long term.
So why pour more funds into stocks now, with some on Wall Street fretting over a market that has seemed unstoppable but could become volatile as a pandemic recovery inches forward?
Some 42% of respondents believe stocks offer good return on investment, while 35% say they had more cash to spend, and 38% cite having more time to research and trade during the pandemic period. The relative ease of trading from home, with many locked down over the past year, was cited by 35%, while 28% said commission-free trades were key.
As for the look ahead, the vibe seems positive, as 62% believe stocks are currently a good investment, with just 25% neutral. "This positive take is widespread across all age and income groups, and regardless of when the investor began trading," said the Deutsche strategists.
Over the next three months, 53% expect stocks will keep rising, while over the next year, 68% have that rosy view. When asked what they would do in the case of a market selloff, new investors said they would reinvest unless any selloff reached 10%, in which case they would pull money out.
And as the economy reopens, with some states moving aggressively long before vaccination has achieved any definition of herd immunity to the novel coronavirus , younger respondents said they would maintain or keep adding to their stockholdings. "We note that this contrasts with respondents ... saying they have had more time to research and trade and the ease of trading at home."
The bank said the results were "broadly representative based on the U.S. Census for this population across gender, age, income, region and race/ethnicity." By age group, 41% of respondents were 34 and under, while 37% were in the 34-to-54 cohort, with a smaller group in the over-55 range. Those earning $50,000 to $100,000 represented 34% of respondents, in line with the U.S. median of $69,000. Some 59% were employed full time, while 7% were part-time workers and 7% were self-employed or business owners.